Navigating The Cost Of Living Crisis – Forbes Advisor UK

From energy bills to petrol pump prices, from groceries and Council Tax to mobile phones and broadband, households are facing huge increases in expenditure. Here’s what’s happening, and what you can do to minimise the impact

Struggling to make ends meet when it comes to the everyday cost of living is nothing new for vast swathes of the UK population. 

But, as the price of simply heating your home, filling up the car and paying for the weekly food shop have soared beyond comprehension, record numbers are now sharing in the experience – while those who were already battling are being pushed further into financial hardship, and even poverty.

What bills have gone up?

It’s difficult to think of any household bill or daily cost that hasn’t gone up in recent months. And households will barely need reminding of those that have. But here’s a more detailed summary, including reasons behind the hikes and – most importantly – if there’s anything you can do about it.

Energy

The biggest worry for millions of households right now is the cost of energy bills. This has been the case for many months, and it has become much worse since the arrival of the new energy price cap level on 1 April. 

The new cap, set by market regulator Ofgem, will see a typical UK household* pay a staggering £1,971 a year for their energy bills. That’s a rise of 54% compared to the previous cap of £1,277. 

If you’re on a prepayment meter, the cap rises from £1,309 to £2,017 a year*.

Worse still, bills are set to rise further in October when Ofgem’s next price cap level takes effect – some commentators are forecasting as high as £3,500 a year*.

But why has energy become so expensive? Wholesale gas prices, which had been climbing steadily during 2021, have soared following the conflict between Russia and Ukraine – Russia being a key international gas supplier. 

And while, of course, it’s incomparable to the suffering of millions of Ukrainians, it’s made it cripplingly expensive for us in the UK to heat our homes. 

The fallout of rising energy bills is already evident. Among those who contacted debt charity StepChange in February (and were responsible for paying utility bills), 28% were behind on electricity payments and 23% were behind on gas. And it’s a situation only likely to deteriorate.

While it’s currently not possible to switch to a cheaper fixed rate tariff (although deals may be available for some existing customers at the level of the current cap), we have outlined the support that is available if you simply can’t keep up with the rising cost of your energy bills.

*Annual cost for a household with average energy consumption on a ‘dual fuel’ gas and electricity standard variable rate tariff (SVT), paying by direct debit. The cap limits the price companies can charge per unit of gas, electricity and a daily standing charge – actual bills will be determined by consumption.

Petrol and diesel

Rising oil prices have also made filling up the car eye-wateringly expensive. For UK drivers, the average cost of diesel and unleaded petrol on 31 March stood at 177.29p and 163.28p per litre respectively, according to the RAC’s Fuel Watch.

In his recent Spring Statement, the Chancellor Rishi Sunak announced a 5p-a-litre cut in fuel duty for a period of 12 months, with effect from 23 March this year. According to the RAC, this will shave around £3 off the cost of filling the petrol tank of a typical 55-litre family car. 

Groceries

Food prices have also been steadily climbing due to factors ranging from changing global weather to distribution issues due to driver shortgages. 
A pint of milk cost 42p in February 2021, according to the Office for National Statistics, and 49p in February 2022.

Inflation, interest rates…

The rising costs of everyday items has pushed inflation to the highest levels in three decades. 

The Consumer Prices Index stood at 6.2% in the 12 months to February – more than three times the Government’s 2% target. The Office for Budget Responsibility (OBR) forecasts CPI will peak at 8.7% in the autumn and remain above 7% until 2023.

The Bank of England uses interest rate rises to counter rising inflation and, as a result, has raised interest rates three times since December to its current level of 0.75%.

…and the cost of mortgages

Interest rate hikes have an almost immediate effect on homeowners paying their lenders’ standard variable rates (SVRs) or Bank rate-linked mortgage deals. 

For those sheltered under a fixed-rate deal, costs will be higher when they come to remortgage, while first-time buyers – if they are able to raise a deposit in an environment of soaring house prices in the first place – will face the same higher costs. 

It’s worth noting that most lenders permit you to reserve your mortgage rate between three and six months in advance. This means you can effectively take advantage of ‘today’s mortgage rates tomorrow’. 

You can find out what rate you may be able to get for your circumstances with our live mortgage tables, powered by our mortgage broker partner, Trussle.

Council Tax

Also from April, Council Tax was hiked for millions of UK households, applying further pressure to the existing strain on budgets. The average Band D council tax bill set by local authorities in England for 2022-23 is now an annual £1,966, which marks an increase of £67 or 3.5% on last year’s figure of £1,898.

However, as part of the Government’s wider package of support (more on this below), every household in Bands A to D in England will receive a £150 council tax rebate in 2022/23 which will not need to be repaid. 

The payments will be made automatically if you pay your bill by direct debit, starting from April 2022 when the rises kick in. If you don’t pay by direct debit, you will need to apply for your rebate.

According to StepChange, debt owed to the government, such as Council Tax, ‘featured heavily’ among the reasons for people making contact with the charity’s advisers during the month of February.

Council Tax payments should be considered as a priority, as you can be taken to court by your local authority for failing to pay. Certain households qualify for concessions, such as a 25% single person’s discount if you live alone.
You can find out more with our Council Tax Q&A, as well as what to do if you are unable to meet the cost.

Home entertainment

Last month, Netflix announced its second price increase in 18 months, with prices going up by as much as £24 a year. It said the price hikes were necessary to sustain its content output and compete with rivals including Disney+ and Amazon Prime.

Costs of a basic Netflix package will rise from £5.99 to £6.99 a month, its standard package will rise from £9.99 to £10.99 a month, while its premium package goes up from £13.99 to £15.99 a month. 

The price hikes will be rolled out gradually from now, with customers receiving an email notification 30 days before the price changes.

Mobile and broadband

Broadband is another essential household cost that’s rising. Customers of providers including BT and EE, Plusnet and TalkTalk, will be hit with higher prices from the spring (March or April). 

It’s due to a clause that allows providers to hike costs once a year mid-contract by an amount linked to inflation in the preceding December.

And it’s the same story with customers of mobile networks such as BT and EE, Three and Vodafone, whose bills will also rise due to inflation-linked mid-contract price hikes.

Consumer borrowing

With just about every household bill you can think of climbing, the fact that lending on credit cards is rising too is worrying and inevitable in equal measure. 

According to the Bank of England’s latest Money and Credit Report, consumers borrowed an additional £1.9 billion in consumer credit in February compared to the year before, of which £1.5 billion was new lending on credit cards. According to StepChange this is, in part, due to people borrowing to meet essential spending.

Separate data from banking trade body UK Finance revealed that, in December 2020, 65% of all active credit card holders had balances remaining at the end of the month. By December 2021, this proportion had edged up to 67.5%. And all indicators suggest that, as fresh data emerges, this number will only rise further.

If you have credit card debt, make it a number one priority to transfer it to a 0% balance transfer deal (bear in mind that most charge a fee). If this is not possible, perhaps due to your credit score or an insufficient new credit limit, always try to pay more than the minimum payment required by the provider. 

If the rising cost of living has cornered you into using a credit card just to pay for essentials, deals are available that offer an initial spending period interest-free. While this will offer breathing space, always ensure you can pay back your debt during this 0% period.

What can you do to survive the crisis?

Critics say that the Government has simply failed to provide the appropriate level of practical measures to help hard-pressed households to meet the costs of soaring bills.

Peter Stutton, head of policy at StepChange said: “We’re convinced that as the year goes on the Chancellor is likely to need to find a way to provide more, and more targeted, support for those who are simply unable to absorb the cost of living increases into their household budgets.”

But, while there is certainly no magic wand that will end the cost of living crisis, there are some cost-free strategies that could make a worthwhile difference to your household budget’s bottom line.

Look for cheaper insurances

Certain costs such as your mortgage or rent, council tax, and are simply immovable. But when it comes to annual insurance policies, such as for your home and car, make sure that you have compared costs from the wider market before auto-renewing with the same provider. Switching is quick and easy and could save hundreds of pounds over the course of the year. 

Find out if you can fix energy

Some energy customers may be able to fix in with their existing supplier when their current fix ends. However, the cost is unlikely to be cheaper than the prevailing standard variable tariff (SVR) which is charged at, or near, the price cap. Fixed rate energy deals are not currently available on comparison websites.

Stop paying credit card interest

 If you have credit card balances which you are unable to clear, paying interest (at a typical 20% APR, variable) is cripplingly expensive and, essentially, money straight down the drain. It’s possible to move balances from several card providers up to, say 90% or 95%, of your allocated credit limit, to a 0% balance transfer card. 

While you’ll need a top credit score to be accepted, applying through an eligibility checker means you can view your chances before making an official application. This protects your credit report from visible searches which could put off subsequent lenders.If you find you are leaning on your credit card to pay for essentials, swap it for one that offers an interest-free period on purchases.

Some of these deals offer up to two years at 0% to the most credit-worthy applicants. So if you are forced to borrow, at least you can do it without paying interest.

Spring clean your current account

It’s worth going through your direct debits and standing orders to uncover any costs that you are forking out for unnecessarily – for example, subscriptions or services that you are no longer using. 

Check to see if you are entitled to any benefits

When you are satisfied that your regular outgoings are as lean as they can be, check to see if there are any income-related benefits or grants you could be missing out on. With a few key details from you and your partner, this is easy to do with a government-approved benefits and grants calculator such as Turn2Us.org.

If you are working and have a child aged between three and four, make sure you are collecting the Government’s 30 hours free childcare if you are eligible. 

If the sums simply aren’t adding up, check to see if you qualify for The Household Support Fund. Available through local councils, it’s designed to offer financial support to help pay for essentials such as food, clothes and utilities. And the Government has doubled its funding from £500 million to £1 billion from April 2022.

Acceptance criteria varies between councils so check the relevant website for more details.  

Make the most of free digital

Using your bank’s app, if you aren’t already, makes organising your finances a lot easier and means you can keep track of your spending whilst on the move.

You could go one step further with a budgeting app like Snoop, Yolt, or Money Dashboard. Using an open banking agreement, these apps allow you to view all of your accounts in one place which can provide greater transparency around the reality of your spending. If you opt for the basic version, many are also free.

Take advantage of supermarket discount/rewards

If you haven’t already, download your supermarket’s free loyalty app. As you’re very likely to have your phone with you, this makes it easy to scan and collect any points you’re entitled to. These can then be redeemed for a pounds-and-pence discount off the cost of your grocery shop.

Make positive lifestyle changes

Small changes to ingrained daily behaviours can also pay dividends over time. For example, making a commitment to use less energy. This could simply mean hanging out washing as the weather improves rather than using the tumble drier, turning the heating down by a degree or two, or switching off lights or radiators in rooms that you don’t use.

A good starting point when it comes to energy-saving is to understand which home appliances use the most energy compared to others. A simple and energy monitor is a clever and inexpensive tool that can help with this.

Outside of the home, changes such as seeking out free parking, and swapping a bought lunch and coffee for one you’ve pre-packed can mean that a day that might have otherwise cost £25, costs nothing.